Property Investment Question

AdrianC

Sausfest wrote: »

For example: Let's say that I have a job that pays £20,000 p/a and have a goal to own multiple properties to accumulate passive income over time to replace my job. Let's say, 10 - 20 years.

Even if you put every single penny that you earn into your BtL fixation, then you're only looking at £200k across a decade. Two x £100k properties?

Step 1. Put your energies into increasing your income. Full-time minimum wage will be £17k as of April.

Sausfest

AdrianC wrote: »

Even if you put every single penny that you earn into your BtL fixation, then you're only looking at £200k across a decade. Two x £100k properties?

Step 1. Put your energies into increasing your income. Full-time minimum wage will be £17k as of April.

Thanks so much for that, this is ultimately what I was after in long run. That's a shame, might find a way in the future but it's unlikely i'll ever get over £20k anywhere.

davidmcn

Sausfest wrote: »

Thanks, i'm already listening to multiple e-books on the subject, just trying to get a headstart on my studies by finding out key words to look for. For example, Lease Options keeps coming up.

You tell us what you think they mean by "lease options", and we'll tell you whether it's remotely relevant. Are these books even applicable to the UK market?

Sausfest

davidmcn wrote: »

You tell us what you think they mean by "lease options", and we'll tell you whether it's remotely relevant. Are these books even applicable to the UK market?

Sure, like I said at the start, i'm new to this and I also said i'm not looking to be spoon fed. I just don't understand how these people manage to buy so many properties without a huge amount of capital.

If I was to guess, the lease would probably be from the buyers perspective, so they would effectively rent it from you to buy it later, similar to a car/ phone contract. But again, i'm not entirely sure and I don't understand how these deals are finanaced or how to start without a small loan of a million dollars Being rich seems to be much easier when you are already rich.

P.s I'm Listening to these (Cant post Links):
The Complete Guide to Property Investment
How to Survive and Thrive in the New World of Buy-to-Let
By: Rob Dix

Buy Low Rent High
By: Samuel Leeds

saajan_12

Agree you need to do reading and come back with specific questions, rather than expect us to teach everything start to finish, but just some sense checks on what you've said:

Sausfest wrote: »

Hey all, I'm very new to property investment, as you're about to find out. But as a concept, I simply don't understand how anybody makes money doing this. - high leverage backed by a diverse and robust income to ride any waves; high yield, low maintenance rental markets which happen to be in areas of high capital growth.. My primary interest is in the BTL market, I know many entrepreneurs that pursue this as one part of their portfolio, I would ask them, but I don't really want to seem as clueless as I am.

For example: Let's say that I have a job that pays £20,000 p/a and have a goal to own multiple properties to accumulate passive income over time to replace my job. - finding tenants, referencing, maintaining property, repairs, remortgaging etc.. its never going to be passive. Or if you employ enough reliable agents then your income will be wiped out. Can't have both. Let's say, 10 - 20 years.

I find a property selling at £60,000 and also assume that I can rent this for £450 per month. - based on what? thats a 9% yield, ie unrealistic. Plus don't forget voids, repair costs, etc. Mortgage repayments of £161 p/m on a BTL 75% LTV. It would take 11 years and 1 month for this to pay for itself. - where do you get this from? Thats 133months x £161 = £21,413 ie not even cleared half your loan, let alone interest. On a 75% LTV 3% interest mortgage you need
* £20k saved for deposit and fees upfront
* £45k mortgage, paying £161pm for 40 years or £400pm for 11 years
Plus interest rates can rise, you're unlikely to get a fixed rate that long, which means more fees to remortgage or go on a very high SVR rate

At which point, this would be pure profit and I own an asset worth £60,000. - No, you still have repairs, tenant referencing / agent costs, gas checks, deposit registering, bills during voids, rental income tax, etc etc.

However, during this 11 year period, it's unlikely that a bank would loan me more money to buy another property - that depends on whether you own your residence, whether you have a sustainable letting business which means they might lend based on expected rental income rather than your salary.. and at the end of this period, i'm stuck with an asset which makes me a small amount of money with most of my money locked into a brick and unable to spend. - If you're talking about £400pm over 11 years + repairs, tax etc, then you're in the red for that period.

My understanding is the above, could somebody help expand my knowledge or point me in the right direction, please.

babyblade41

I don't know about BTL mortgaging as mine have always been owned outright but you say passive income after the mortgage has been paid off... That is a mistake so many make and no way is it passive .
For me it was a full time job ..I did have industrial units and dipped into residential in the last 15 years and apart from only having one now it's something I'd never advise anyone to go into if they are thinking it to be sit back and collect the rent.

What did it for me and decided I'd had enough was the last tenants treating my property with so little respect it was horrifying.

All the referencing didn't help as the lady in question was a relatively good tenant .. a few late payments but a quick nudge was enough until...

A new partner moved in and all hell broke loose , to cut a long story short a LL's hands to act within the law at all times are tied..issuing section 21 or as I did section 8, although straight forward everything on the application has to be correct, eviction dates have to be worked out..one day too soon and the eviction is null and void
Factor in court times, loss of rent , damage to property ongoing is a stresser when no mortgage payments are involved. Imagine when you need the rent to pay the mortgage and even bigger stress.

Tenants don't leave after a court tells them invariably you have to apply again for a court bailiff ..more time with no money and your property falling into disrepair . My tenants left water running and over flowing ruining kitchens , flooring and bathroom .. I had to agree with a figure with insurance company but it didn't cover the whole cost by a long way
Finally they are moved on by bailiffs and you look at what your hard earned has turned into and the cost of clearing out the mess. The deposit held in a scheme doesn't come anywhere near covering the cost

Now the above is a worst case scenario but it happens no matter how well you vet anyone, circumstances change .

If you do get a good tenant (I have a couple in my last remaining property who have added value , always asked before they did anything and it is their home , they pay under market rent for the area and are in it for the long haul ) I pop in from time to time for a cuppa and a catch up and we will go through anything that they want me to have a look at and they go through things that they would like to do (no structural more landscaping , decorating and changing kitchen units etc)
You need to read the excellent threads on being a LL , your obligations and laws surrounding every aspect. Factor in LL insurance, maintenance , repairs and everything else plus time .
If you are going to have it managed by an agent , any small margin of profit will be probably wiped out and you will end up with your investment costing far more than the rent each month

If I were you I wouldn't entertain it and look for a better way of increasing your income ..

steampowered

Your sums are completely unrealistic I'm afraid.

Renting a property worth £60,000 for £450 a month (that's £5,400 a year) would be a 9% yield, which would be extremely high.

Your mortgage costs are lower than anything I could find online too. £180pm+ for a 25 year mortgage of £45,000 on a £60,000 property.

You are also leaving out all the costs and taxes associated with being a landlord.

If you want to be able to replace your normal income, you need to be saving a significant amount and investing it into assets like stocks & shares or property, it is not an easy/cheap process.

sevenhills

Bossypants wrote: »

Most BTLers putting in only 25% will be lucky to break even most years, especially if getting a cheaper property (poorer quality buildings typically attract less reliable tenants, and both of these factors are likely to increase your outgoings).

Since I have had a room advertised on spareroom.com I have noticed 3 bedroom houses being advertised. Each room being advertised for £350/£400+ per month.
£300 per month per room seems to be a minimum, more in cities.

Obviously more expences, but when fully occupied return of £1,000+

Pixie5740

G_M wrote: »

My sticky at the top of this board may help but focusses more on the legalities than on the investment issues.

It was more a starter for ten so the OP could see what kind of things (s)he would have to spend money on in order to comply with the law.

Comms69

Sausfest wrote: »

Hey all, I'm very new to property investment, as you're about to find out. But as a concept, I simply don't understand how anybody makes money doing this. My primary interest is in the BTL market, I know many entrepreneurs that pursue this as one part of their portfolio, I would ask them, but I don't really want to seem as clueless as I am.

For example: Let's say that I have a job that pays £20,000 p/a and have a goal to own multiple properties to accumulate passive income over time to replace my job. Let's say, 10 - 20 years. - You will need a better paying job. That is barely enough for you to pay your own costs, yet alone a mortgage in a property you don't live in

I find a property selling at £60,000 and also assume that I can rent this for £450 per month. - Why would you assume that?? Mortgage repayments of £161 p/m on a BTL 75% LTV. It would take 11 years and 1 month for this to pay for itself. At which point, this would be pure profit and I own an asset worth £60,000. - Well hopefully it will be worth more than 60k, otherwise you will have spent 11 years making exactly zero. (but you haven't calculated taxes, voids, repairs etc.)

However, during this 11 year period, it's unlikely that a bank would loan me more money to buy another property and at the end of this period, i'm stuck with an asset which makes me a small amount of money with most of my money locked into a brick and unable to spend.

My understanding is the above, could somebody help expand my knowledge or point me in the right direction, please.

Almost no-one goes into the BTL low end market (and 60k is the lowest end) expecting to make a fortune; you shouldn't either.